The official blog of Illinois Issues magazine,
published by the Center for State Policy and Leadership
at the University of Illinois Springfield

Wednesday, November 14, 2012

Business group calls state pension problem "unfixable"

By Jamey Dunn

The Civic Committee of the Commercial Club of Chicago called the state’s troubled pension system “unfixable” in a memo sent to its members today.

The group’s leadership claims that it is no longer possible to preserve the state’s pension system with the benefit levels currently offered and that proposals that have recently come up for consideration in the legislature would not go far enough toward solving the problem.
“While a number of pension reforms have been proposed in the General Assembly, these are half measures at best. Whether they involve token reductions in cost-of-living adjustments, locking in billions of dollars in unfunded retiree health care obligations or other scenarios, these ‘reforms’ are either inefficient or stand to make our state’s fiscal scenario even worse,” the memo stated.

The committee offered four changes to benefits that its leaders said must be included in any “meaningful” pension reform. The memo proposed eliminating all cost-of-living increases for current and future retirees, capping the level of salary that can be used to determine benefits, increasing the retirement age to 67 and shifting the state’s portion of the cost of retiree benefits for educators to K-12 schools outside of Chicago, universities and community colleges over 12 years. The memo said that the four proposals would not fix the problem, but would “slow the bleeding.”

The proposals cut deeper into benefits than any provisions recently up for consideration in the legislature and presumably would also do more to cut pension costs. Some of them mirror past proposals but go one step further. For example, Gov. Pat Quinn proposed increasing the retirement age to 67. But under his plan, the increase would be phased in so those close to retirement when it took effect would not be affected. The committee’s proposal does not include such a phase-in.
The plan does not meet what many, including Senate President John Cullerton, see as a constitutional requirement to that prohibits any reduction in pension benefits. Cullerton has said he believes that consideration must be offered for any benefits cut. That is why Senate Bill 1673, which is the bill that lawmakers were debating at the end of the spring legislative session, would have given employees a choice between keeping cost-of-living increases based on compounded interest or state-subsidized retiree health care. There are many who believe even such a consideration violates the protection of pension benefits in the Illinois Constitution.

The Civic Committee based its assertion that the system is “unfixable” upon an in-house actuarial analysis, which it is not releasing publicly at this time. However, in a separate letter to Gov. Pat Quinn, the group’s leaders said that the political climate was also a factor. “We base that statement on more than just the overwhelming numbers. The magnitude of the unfunded obligations, combined with the total lack of political courage to rectify the situation, leads us to believe that our pension systems can no longer be salvaged sufficiently to meet their current obligations.”

“Millionaire CEOs want to slash the modest retirement savings earned by middle-class public servants like teachers, police, nurses and caregivers,” Anders Lindall, spokesman for the American Federation of State County and Municipal Employees Council 31, said in a written statement. “Regrettably, that’s not news. But it is disappointing that the Civic Committee’s letter to the governor is alarmingly fact-free: No mention that the pension debt was mostly caused by politicians who skipped required payments even as public employees always paid their share. No mention that retirees rely on an average pension of just $32,000 a year, with nearly 80 percent not eligible for Social Security.”

Meanwhile, Quinn and House Minority Leader Tom Cross said they have been meeting about pension reforms and are optimistic about passing a bill before the new General Assembly is seated in January. “It’s not a mystery to anybody that we need to fix it. I think the sooner the better. I hope it’s done and believe it can be down in a bipartisan collaborative manner. We had a good meeting the other day, and I hope we can move forward over the next couple months,” Cross told reporters in Chicago.

Quinn danced around the issue of shifting pension costs to schools — the major topic of disagreement between Cross and Chicago Democrats. “Well, I don’t think you should just emphasize one part of it,” Quinn said. “I anticipate over the next couple months we’ll have quite a bit of discussion to iron out the fine points and get it done.” Quinn has been a vocal advocate of the cost shift in the past.

Cross said reductions to cost-of-living increases would likely continue to be a target of those looking to cut pension costs. He also said a change to the retirement age is on his list as a potential component of a reform package. “I think we would agree that the [cost-of-living adjustment] is an area where we can save some significant amounts of money. I think that is probably one of the big big areas where you could do that. I think you can impact when people retire. You can impact through the amount of the [cost-of-living adjustments] ... when people get it.”

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The bureau follows state government from the Capitol Press Room and writes articles for Illinois Issues magazine, published by the Center for State Policy and Leadership at the University of Illinois at Springfield.
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